WASHINGTON - The number of newly laid off workers seeking unemployment benefits rose more than expected last week, the latest sign the economy is shrinking and unlikely to rebound anytime soon.

The figures came a day after the government said retail sales dropped sharply in December and the Federal Reserve issued a gloomy economic assessment.

Economists said the reports illustrate the economy remains stuck in a downward cycle: Consumers initially cut back spending in response to the housing and credit crises, slowing the economy and leading companies to lay off workers, which spurs even more caution among consumers.

President-elect Barack Obama's administration hopes a massive stimulus package will jolt the economy back to life. House leaders yesterday proposed legislation with $825 billion of federal spending and tax cuts.

But some analysts think the recovery will stay sluggish, even with the stimulus. "We're not looking for a speedy recovery by any means," said Carl Riccadonna, senior US economist at Deutsche Bank.

The Labor Department said yesterday that first-time requests for unemployment insurance jumped to a seasonally adjusted 524,000 last week, above analysts' expectations of 500,000 new claims. The increase is partly due to a flood of requests from newly laid off people who delayed filing claims over the holidays, a Labor Department analyst said.

Companies from a range of industries disclosed more job cuts yesterday. MeadWestvaco, which makes paper and plastic products, said it will cut some 2,000 employees, or about 10 percent of its workforce, as it accelerates cost savings. Software company Autodesk Inc. said it is cutting 750 jobs, or about 10 percent of its employees, as it prepares to report a fourth-quarter loss.

And on Wednesday, Google Inc. said it was closing three engineering offices and cutting 100 recruiters as the recession dampens hiring. Computer equipment maker Seagate Technology also said it will eliminate 2,950 jobs, or 6 percent of its workforce.

The rise in initial jobless claims came after two weeks of declines that economists said largely reflected the holiday-related distortions in the data. Analysts have said retailers did not hire as many temporary seasonal workers this year, due to the recession, and so there weren't as many subsequent layoffs.

But the jump in last week's numbers, combined with the slew of new layoffs, could signal the resumption of an upward trend in claims that was evident last year.

Separately, the Labor Department said wholesale prices fell by 1.9 percent in December, closing out a year in which prices dropped by the largest amount in seven years. Energy prices last month dropped by 9.3 percent, reflecting a record 25.7 percent plunge in the cost of gasoline.